Strategy and KPI Scorecard
Your vision determines your future. No doubt you already have a Vision. But can you honestly say that it is connected to a plan? Is your organisation 100% engaged? Is the plan being rolled out across your organisation? Most strategies fail in the implementation phase.
This is because there is a disconnect between the vision and the process of defining strategic objectives that have owners, building in meaningful key performance indicators and implementing the initiatives/projects to drive the strategy.
Our KPI software, Scoreboard, can help you manage your goals using this five-step process.
The main purpose of a strategy scorecard is to break a vision down into manageable work items. This starts by identifying what your priorities really are. A priority is an area of activity that will receive focus during any given strategic cycle. This could be either long-term or short-term. For example, at typical long-term strategic priority might be Operational Excellence. For many organisations that have encountered accelerated growth, operational procedures may have evolved randomly. Or worse still, due to acquisition or merger, there may be multiple processes in place that do the same thing. Aligning processes is not something that can occur overnight, a long-term plan for operational excellence would need to be put in place.
A typical short-term priority might be Brand Recognition. Although it can take a long time to build a brand, the kick-off activity is usually relatively short due to the increased marketing costs. Brand Recognition is often added as a one-year strategic priority to provide a boost to existing marketing activities. This boost will often generate networking relationships that can be sustained into the future.
An organisation should aim to declare three strategic priorities during a strategic cycle and look at revising one or two of them during the next strategic cycle. Why only three priorities? Reseach has clearly shown that priorities are a function of the ‘law of diminishing returns’. That is, if you plan to do 1-3 things, you will do them well. If you plan to do 3-10 things you will do 2-3 badly, if you plan to do more than 10 things, you will do nothing at all!
Strategic priorities, when written correctly, will provide clear direction to an organisation. They will not, however, provide the level of detail required to describe how the priority will be achieved. This is the job of a strategic objective. A strategic objective is generally an improvement activity. Unless you are a start-up organisation, you will already have processes and activities in place. Some of these will be good, some will be not so good. It is unlikely (unless a very structured approach to strategy has already be taken) that these processes and activities will be linked.
Strategic Objectives are created with causal relationships leading from an investment area through to a change in process that will have a positive impact on the customer and result in a financial gain. For example, we can see in the sample strategy scorecard below that an investment in Knowledge and Skills will drive an improvement in the Offering Selection process which in turn will Improve the Clarity of Offering from a customers perspective resulting in an Increased Revenue.
This example appears to be at a very high level. However, the detail behind each of theses strategic objectives is captured in a related strategy document in the form of strategic objective results. For example, behind the label Improve Stock Reliability might be a result that looks like this: Result: All stock movement processes are fully documented, adhered to and integrated into the new technology platform. A stock movement will not occur outside these processes without an executive exception. Here we can see that a very clear instruction has been given to the owner of this objective. They have been told what the result must be and given the flexibility to come up with their own solution.
Strategy, like any other business process, needs to be measured. Strategic success is not just financial success. That is not to say financial success is not important, it most certainly is. But it is only one part of strategic success. Strategy, by its very nature, is a medium to a long-term undertaking. Where financial results can be manipulated to look good in the short-term (for example, by drastically reducing costs and customer service) other strategic results cannot. It is very difficult to manipulate customer satisfaction or customer retention or process improvement or even innovation investment. All of these things should make up the portfolio of strategic measurements.
Strategic measurements are often referred to a Key Performance Indicators or KPIs. This is a very good title. The emphasis here is on the word Key. A Key Performance Indicator is one of a few measures that are absolutely key to the performance of an organisation. They tend not to be operational measures. Operational measures are important, however, they are used to measure how well financial and internal processes are behaving and do not provide an indication of business health.
In our model, a selection of KPIs across four major areas of business are identified. The areas, or Perspectives are; Finance, Customer, Internal Processes and Organisational Capacity. This brings a ‘balance’ to the strategy and ensures that there is a good mix of strategic and operational as well as leading and lagging KPIs.
And finally, we come to Initiatives (often called projects). It is intentional that initiatives are at the end of the strategic scorecard process. This process, which is based on the Balanced Scorecard methodology, is very different to many other strategic processes. Where other strategic processes introduce projects early, we ask the simple question, “why create a project without all the facts available to make a sensible investment decision?”
in other words, why invest in a project unless it:
- Contributes to my vision and strategic priorities.
- Has an impact on the results described by my strategic objects.
- Can be measured to determine the rate of success
Without completing the first four stages of this process, any initiative or project will only be a success by chance!
Initiatives can be large or small. We often find this process identifies small initiatives that are low-cost and high-impact. These quick-wins are very popular with executive teams. However, it is important to identify initiatives that provide a balanced portfolio of improvement activities. The process, inevitably, will drive out more initiatives than a budget can sustain. Once again, we need to return to the mantra focus, focus, focus. One of the most important tasks when developing initiatives is to prioritise on the ones that will have the biggest impact.
If you need help defining your Strategic Priorities, Objectives, Measures and Initiatives then ask us to run a Strategy Workshop at your location.
If you need a tool to help manage your Strategic Priorities, Objectives, Measures and Initiatives and to provide interactive dashboards and reports, try Scoreboard.